Delta In Chapter 11 By Sept '05

[WorldTraveler]

You may recall (if you care to look at the facts) that DL's CEO cleaned out all of the executives left over from the previous adminstration and failed to grant the executive VP title to most of the executives until they proved their mettle. Two years later (or something), Grinstein is apparently happy with what he sees and wants to elevate some of his picks and RESTORE the titles that other airlines have kept for their senior officers for years and which DL had prior to Grinstein's arrival. Palumbo apparently decided he wanted to move on and make more money, something he couldn't do at Delta. He did stabilize Delta and undoubtedly left a pretty long to-do list that the exec team will have to execute against if they want to succeed. I'm sure the lawyers left for the same reason: Delta along with the other legacies are in no position to pay industry competitive salaries for now or probably years to come. If you want to make money at an airline, you better be REALLY good. And if you're that good, you can probably make more elsewhere. If the boards do their homework, you should see people running airlines who really know how to and want to. AA and CO both have strong leadership teams, are making money, but those people could make more elsewhere. Delta will get there in time but it is starting at least 2 years after CO and AA.

 

[nyc6035]

While I don't disagree that DL's debts are unsustainable, chapter 11 is not really an answer either.  All chapter 11 does is restructure debt - it doesn't eliminate it. 

[post="281518"][/post]​

With alll due respect you need to bone up on your Bankruptcy knowledge. Debt is typically reduced significantly during the BK process. It is not unusual for Secured debt holders to receive something on the order of 80-90% of new debt, with the rest as equity; Unsecured holders in the 50% or less range of new debt with some additional portion in equity. And as nearly always equity holders are wiped out. In an Bankruptcy where the company successfully reorganizes you'd likely see:

-A new controlling investor or investor group.
-A shedding of Long Term Liabilities (and the underlying assets; so think aircraft)
-Reduction in Secured and Unsecured Liabilities through negotiation
-An increase in (balance sheet) equity through the exchange of debt for equity (along with whatever cash a new investor brings to the table)

All and all it would be quite reasonable to expect a significant decrease in debt if a company successfully navigates through bankruptcy.

 

[WorldTraveler]

I think we're in agreement, NYC. Reduction and elimination of debt are considerably different. I have said elsewhere and reiterate here that BK is essentially a big and costly debt for equity swap process. Old equity is usually wiped out and the restructured debt is exchanged for equity in the new entity. Forgive me if I have excluded the value gained from dumping old secured debt; if the asset can be sent elsewhere to be used productively, I'm not sure that anyone loses a great deal of anything.

 

[nyc6035]

Fair enough WT; I misinterpreted what you meant by "Restructure Debt." It appears we are indeed in agreement.

 

[SoftLanding]

With regard to Delta's problems, management could cut employee cost, let's say, 20% overnight, since there are no unions to deal with. (Excepting pilots & dispatchers, I believe.)

You'll have a bunch of pissed off employees, but look at US Airways...🙂

Still looks to me like the pension bill will pass in some form, but might not be enough...

 

[WorldTraveler]

I imagine Delta will reserve the right to use pay cuts should conditions deteriorate. On the other hand if help is needed that fast, bankruptcy would probably needed to stave off the creditors.

However, just like the pension reform, it makes more sense for creditors to work with a company outside of bankruptcy than to push them into it where everyone loses control.

 

[SoftLanding]

I imagine Delta will reserve the right to use pay cuts should conditions deteriorate. On the other hand if help is needed that fast, bankruptcy would probably needed to stave off the creditors.

However, just like the pension reform, it makes more sense for creditors to work with a company outside of bankruptcy than to push them into it where everyone loses control.

[post="284159"][/post]​

Looks like pension bill passed, don't know for sure what the next step would be, a possible signature by President Bush?!

Also, you would think it would be to make sense for creditors to work with a company outside of CH11, though time is running out for DAL & NWAC with new bankruptcy laws going into effect in Oct-05 (I believe). (Restrictions on time in CH11 etc.)

 

[eolesen]

Looks like pension bill passed, don't know for sure what the next step would be, a possible signature by President Bush?!

[post="284321"][/post]​

It passed committee, but has yet to be debated on the floor. If NWAC goes into bankruptcy within the next month due to a strike/lockout, it's hard to say how support for the pension reform will go.

 

[SoftLanding]

It passed committee, but has yet to be debated on the floor.  If NWAC goes into bankruptcy within the next month due to a strike/lockout, it's hard to say how support for the pension reform will go.

[post="284331"][/post]​

Ok, that settles that. (pension bill)

Maybe CH11 is what DAL and NWAC want, that way they'll take care of it all in one scoop; pensions, debt reductions and also the possibilities of NOT coming out of CH11.

Looks/sounds like the mood among commentators are becoming one of "let them close the doors, and let the low-cost take over"...

Oil is obviously still one huge problem...Oh, well...

 

[WorldTraveler]

It is obvious that the airlines that restructured first like AA (and CO which never had a real cost problem because of its earlier C11 visits) have a chance of staying out of bankruptcy and surviving. The jury is still up in the air on the other four. If oil stays up, UA and US might not survive since they are further along the process already. US is far more likely to fail to reorganize and that would help DL the most.

What should be perfectly clear is that no airline's business plan can sustain $60/barrel oil because fares have to be much higher than they are now. Fares will not go up until alot of capacity leaves the industry. Right now, the only place where that is expected to happen is at US as part of the HP merger.

If DL files for bankruptcy, it is very likely NW will too. I still believe lenders will do everything possible to keep any more airlines out of bankruptcy but they can't control all costs or generate revenue that isn't there.

 

[Whadayano]

I think the effective date for the new, tougher corprate bankruptcy rule is the 17th of October (don't ask me why--probably a certain number of days after the signing of the bill or its publication in the federal register). Apparently Grinstein sent a new message to employees today that sounds a bit more urgent than other messages. Besides rejecting airplane leases in bankruptcy, some gate and even terminal leases would probably be rejected, and of course given the large amount of secured debt, betting on 50 cents on the dollar for unsecured debt recovery is a bet I wouldn't care to take.

 

[insp89]

It is obvious that the airlines that restructured first like AA (and CO which never had a real cost problem because of its earlier C11 visits) have a chance of staying out of bankruptcy and surviving. The jury is still up in the air on the other four. If oil stays up, UA and US might not survive since they are further along the process already. US is far more likely to fail to reorganize and that would help DL the most.

What should be perfectly clear is that no airline's business plan can sustain $60/barrel oil because fares have to be much higher than they are now. Fares will not go up until alot of capacity leaves the industry. Right now, the only place where that is expected to happen is at US as part of the HP merger.

If DL files for bankruptcy, it is very likely NW will too. I still believe lenders will do everything possible to keep any more airlines out of bankruptcy but they can't control all costs or generate revenue that isn't there.

[post="284397"][/post]​

WorldTravler quote... "US is far more likely to fail to reorganize and that would help Delta the most".. Seems you better be concerned about Delta's problems instead of hoping Delta's competitors fail....

 

[Beer Guzzler]

Northwest and Delta Air Lines are likely to file for Chapter 11 bankruptcy protection in mid-September, a month before a more-restrictive bankruptcy law goes into effect, bankruptcy experts and airline insiders say.

The airlines are expected to delay any action until around the Labor Day weekend to avoid distressing employees during the busy summer travel period.

Northwest and Delta continue to post significant losses while trying to cut costs and adjust to record high fuel prices.

Northwest, Delta expected to file for bankruptcy soon

 

[Fly]

The REAL reason they will file before mid October!!!!

Under the new law, companies in Chapter 11 are barred from paying retention bonuses to executives unless the executives prove they have job offers elsewhere.

The provision aims to stop companies from taking money from employees hit by wage and benefit cuts to enhance packages for managers, said Lynn LoPucki, a law professor at the University of California, Los Angeles.

"Very often the same managers who got the company in trouble were instead getting retention bonuses to stay," LoPucki said.

 

[Bear96]

They're not gonna file anything.

Right, WT?